US and European junk bond yields hit lows

August 11, 2016

Gavin Jackson, Dan McCrum and Eric Platt, Financial Times

Yields on US and eurozone speculative grade rated bonds fell to their lowest level for more than a year on Wednesday due to a global hunt for income spurred by central bank purchases of corporate debt.

The average yield, weighted by issue size, for high-yield bonds included in the iBoxx euro index dropped to 3.47 per cent, the lowest since July in 2014. Bond prices rise as yields fall.

Also on Wednesday, the risk premium or spread above the rate paid by government bonds fell below 400 basis points for the first time since July last year.

The shift is the latest sign that the inclusion of investment grade bonds in the European Central Bank’s asset purchase programme — as well as an announcement that the Bank of England will start buying the assets in September — has compelled investors to buy riskier assets.

Todd Youngberger, a strategist for Aviva Investors, said that while the spread on high-yield bonds was small by the standards of history, “given the demand for yield worldwide it has scarcity value right now, and the overall default trend is coming down”. Read more